Inheritance tax: planning for changes to business property relief

A number of proposed changes to the inheritance tax regime were announced at the autumn Budget. One of the most significant – and controversial – is the proposal to restrict the availability of business property relief (BPR), alongside restrictions to agricultural property relief (APR).

What qualifies for business property relief?

Currently, shares in private trading companies generally qualify for full BPR. This means that if someone dies holding these shares, the estate does not need to worry about having to pay tax on an illiquid asset and that gifts (including gifts to trusts) can be made free of IHT.

What are the proposed changes?

The proposed changes will mean that only the first £1 million of assets which qualify for BPR get full relief per individual. The £1 million will be an allowance, which also applies to the combined value of assets which qualify for APR. For qualifying assets above the £1 million value, the relief will apply at a rate of 50%. At current rates, this means there will be a 20% charge at death on the excess above £1 million. Equally for trusts, IHT entry or 10-yearly charges on BPR assets should be a maximum of 3% on any excess above the trust’s £1 million allowance. These changes are proposed to apply from 6 April 2026, but there are ‘forestalling’ rules which can catch gifts made post-30 October 2024.

Planning for change

If it’s your intention to pass the business down to family members, some early planning is highly advisable. This could include: Reviewing wills and considering redirection of assets during lifetime and at death; considering a life interest trust for spouses on first death Early lifetime gifts to individuals which will be exempt provided the donor lives for another seven years.

Creating different classes of shares (e.g. non-voting) to transfer value

Transferring shares to a family investment company and using different share classes in a similar way (this can be useful where there are other unrelated shareholders in the company) A Fambo (family management buy out) which involves selling the company to family members You could also consider other succession planning, such as a sale to a third party or to an employee ownership trust. This would leave you with sale proceeds which could then be gifted. The proceeds do not qualify for BPR, but it mitigates the problem of having IHT to pay without the cash. Also consider insurance, whatever plans you put in place.